COLL Part 7.5 Exposure for derivatives and forward transactions—QFC retail schemes

Guidance for pt 7.5

1 A scheme may invest in derivatives and forward transactions if the exposure to which the scheme is committed by the transaction itself is suitably covered from within the scheme property. Exposure will include any initial outlay in relation to the transaction.
2 Cover ensures that a scheme is not exposed to the risk of loss of property, including money, to an extent greater than the scheme's net asset value at any time. Therefore, a scheme is required to hold scheme property sufficient in value or amount to match the exposure arising from a derivative obligation to which the scheme is committed. Rule 7.5.1 (Cover for transactions in derivatives and forward transactions—QFC retail schemes) sets out detailed requirements for cover.
3 In accordance with rule 7.1.3 (2) (b) (Treatment of obligations under ch 7— QFC retail schemes), cover used in relation to a transaction in a derivative or forward transaction must not be used for cover in relation to another transaction in a derivative or forward transaction.
Amended by QFCRA RM/2012-5 (as from 1st July 2013).